U.S. Energy Secretary Steven Chu said on Thursday that global oil producers appear to have enough spare capacity to make up for Iranian exports curtailed by tough new sanctions.
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Following release of an Energy Information Administration report on Wednesday that showed world supplies were historically tight, Chu stressed the importance of using sanctions to ensure Iran does not develop nuclear weapons.
"There is spare capacity and we believe -- we'll see -- but I think there is sufficient spare capacity," Chu told reporters on Capitol Hill.
U.S. sanctions on foreign banks that handle payments for Iranian oil begin to take effect in June. By the end of March, President Barack Obama will determine whether global oil supplies are sufficient to insist that current buyers of Iranian oil significantly reduce those purchases.
Obama has the ability to offer exemptions to countries that show some effort to cut their purchases from Iran.
The aim is to cut funds to Iran's nuclear program by slashing revenues from its oil exports. Iran maintains the program is for peaceful purposes and denies it is trying to build nuclear weapons.
"The sanctions against Iran are important," Chu said.
"It would be very destabilizing, I think everybody would agree, if Iran developed nuclear weapons. We're trying to convince Iran in its best interests not to go in that direction," he said.
In a report that is part of the tough new sanctions law, the EIA, an independent arm of the Energy Department, found that Saudi Arabia has been pumping more oil.
Saudi Arabia, which has the world's biggest spare oil capacity, has produced an average of 9.7 million barrels per day over the last two months, up 600,000 bpd from the same period last year, the EIA said.
But the EIA also said the cushion provided by that spare capacity was modest by historical standards.
The Obama administration has come under increasing political fire for high gasoline prices, due in part to tensions in the Middle East.
Chu told lawmakers at a hearing on Thursday that the administration is doing what it can to ease the sting of high prices on consumers and businesses.
Some Democrats have urged the administration to release oil from its Strategic Petroleum Reserves, but Chu declined to comment on how or whether the new analysis from the EIA would affect that decision.
"The President will use whatever tools he has to do what we have to do. We have the SPR option on the table," Chu told reporters.
(Reporting by Roberta Rampton; Editing by Dale Hudson and Bob Burgdorfer)